It's always seemed fundamentally flawed to me that the exchange laws are designed to prevent people benefitting from insider information but then the entire purpose of the stock exchange is to make money by leveraging information asymmetry to make choices other rational actors wouldn't make because you have more knowledge or data than they do.
It's a very "leverage your info to make money no wait not like that" scheme. I think I just don't understand what the difference is between an insider who sits on a board (illegal) or has a nephew who's an SVP at the company (illegal) and a politician setting the laws that shape the whole industry (legal apparently?) or gets tips from same (legal apparently?).
The problem with insider trading is that incentivises people with power to do unlikely things with that power because private knowledge of the upcoming unlikely event is unusually profitable, especially if it is destructive. This ship may have sailed.
That's why i would rather see insider trading made legal, but transparent.
Instead of quarterly filings, if you are considered an insider (or is affiliated with one), you are required to have your trades be instantly reported and be public the nanosecond you make them. You are allowed to make use of the insider info, as long as you adhere to these transparency measures.
> ...you are required to have your trades be instantly reported and be public the nanosecond you make them.
That doesn't do anything at all to remedy the situation. Better would be to require trades by insiders (and the particulars of those trades) to be locked in and publicly announced at least seven calendar days in advance. You need not announce the reason for the trade, but you must announce the amount of whatever it is you're selling and/or buying and the date at which the transaction will happen.
Yes, I'm aware of the whole "scheduled stock sale" thing that folks at a certain level have to do when trading in the stock & etc of the company they work for. IMO, that should be mandatory for all employees and their families.
It makes more sense when you realize that insider trading laws came after it was a problem, not before.
Before the insider trading laws, the stock market was much more volatile and was more akin to gambling for people out of the know. For people in the know, it was an easy way to extract wealth from those on the outside just looking at the numbers and publicly available information.
> I think I just don't understand what the difference is between an insider who sits on a board (illegal) or has a nephew who's an SVP at the company (illegal) and a politician setting the laws that shape the whole industry (legal apparently?) or gets tips from same (legal apparently?).
This example is just standard issue corruption. Politician gets to exempt themselves, so they do.
> It's always seemed fundamentally flawed to me that the exchange laws are designed to prevent people benefitting from insider information but then the entire purpose of the stock exchange is to make money by leveraging information asymmetry to make choices other rational actors wouldn't make because you have more knowledge or data than they do.
Insider trading laws are designed to prevent people that can affect business outcomes from benefiting by affecting those outcomes. For example, a senior executive screwing up a crucial delivery to gain money from short positions.
The idea is society benefits from the assumption that all executives are ideally holding long positions on their business.
It's a very "leverage your info to make money no wait not like that" scheme. I think I just don't understand what the difference is between an insider who sits on a board (illegal) or has a nephew who's an SVP at the company (illegal) and a politician setting the laws that shape the whole industry (legal apparently?) or gets tips from same (legal apparently?).